The Michigan Court of Appeals recently issued an interesting ruling regarding the ability of a litigant in probate litigation to recover attorney fees from the trust in dispute, even if all parties agree to such payment. In re Edward and Elaine Jaye Trust, No 363847, 2024 WL 2868680 (Mich Ct App June 6, 2024) (unpublished).

In 2016, probate litigation commenced involving the guardianship of Elaine Jaye, Elaine’s trust and a petition to appoint a conservator for Elaine. The Klug law firm represented Elaine’s daughter Karen in the litigation. In 2017, the parties to the litigation agreed that Elaine’s trust would pay the attorney fees of apparently all litigants, and the probate court entered an order to that effect. The litigation dragged on for years, and the probate court expressed frustration that the case “seemed to be about nothing” yet was generating substantial attorney fees.

In 2022, Karen’s attorneys, the Klug law firm, sought payment of its fees (some of which were quite stale) from Elaine’s trust, pursuant to the 2017 stipulated order. In response, the probate court removed and replaced the trustee of Elaine’s trust and directed the successor trustee to make a recommendation whether and to what extent attorney fees should be paid by Elaine’s trust. The successor trustee recommended that the court vacate the stipulated order regarding payment of attorney fees and deny payment of the Klug law firm’s fees from Elaine’s trust, because the fees were for services that did not benefit the trust. The probate court followed these recommendations.

The Klug law firm then sued Elaine in circuit court for breach of contract, in a second attempt to collect its fees, this time from Elaine individually. The circuit court dismissed the Klug law firm’s complaint under MCR 2.116(C)(6) (another action pending involving the same parties and the same claim) and (C)(7) (claim barred by the probate court’s prior judgment). The Klug law firm then filed a creditor claim for payment of its attorney fees with Elaine’s conservator, which the probate court failed to act on. The Klug law firm appealed.

The Klug law firm argued that it was entitled to receive its attorney fees from Elaine’s trust under MCL 700.7904, because its services had “enhanced, preserved, or protected” trust property. The Michigan Court of Appeals concluded that this statute granted the probate court discretion whether to allow payment of attorney fees from a trust, even if trust property had been “enhanced, preserved, or protected;” the probate court could refuse to authorize payment of attorney fees from a trust “as justice and equity require...”; and that the probate court had appropriately withheld payment in this case.

The Klug law firm argued that Elaine’s trust was automatically liable to pay its fees under MCL 700.7605 and MCL 700.7611, but the appellate court noted those statutes only applied when the settlor of the trust was deceased, which was not the case here.

The Klug law firm argued that the probate court lacked authority to vacate the stipulated order regarding payment of attorney fees. The appellate court disagreed and provided two reasons. First, the stipulated order was interim in nature and thus “subject to revision before entry of final judgment” under MCR 2.604(A). Second, vacating the stipulated order was not an abuse of discretion. The lawsuit was litigated aggressively, yet there seemed to be no fundamental legal issue in the case. The probate court acted within its discretion by striking the part of the stipulated order that “subjected all of the Jaye Trust assets to being raided for the continuous litigation between the parties...” Therefore, the appellate court affirmed the probate court’s refusal to allow payment of the Klug law firm’s attorney fees from Elaine’s trust.

The appellate court did not agree with the dismissal of the Klug law firm’s breach of contract complaint under MCR 2.116(C)(6), because the claim before the probate court (seeking payment from trust under MCL 700.7904) was not the same as the claim before the circuit court (seeking payment from Elaine individually under a contract theory). However, the appellate court did agree that the circuit court lawsuit was barred by the probate court’s prior judgment under MCR 2.116(C)(7).

Finally, the appellate court agreed with the Klug law firm that the probate court had erred by not ruling on its creditor claim, so it remanded that portion of the case to the probate court for further proceedings. However, the appellate court noted that the probate court had the ability to make adjustments to the fee request based on reasonableness.

It is natural for a practitioner to rely on a probate court order that provides for payment of attorney fees from a certain source. However, if the probate court concludes that the parties and the attorneys are unnecessarily prolonging the litigation, then the court may revisit its prior attorney fees order and revise it to prevent the trust assets from being inequitably dissipated. That seems to be what happened here, and this is a good reminder for attorneys in similar situations to remember the court’s ability to revisit previous orders.