908 N.W.2d 471
Wis. Ct. App.2018Background
- Rebecca Derzon executed a March 10, 2008 estate plan naming Lori Laatsch as trustee of a revocable trust and personal representative; it drastically changed prior distributions, favoring Laatsch. Rebecca died in August 2008.
- Interested parties (Mark, Alan, Paul Johnson’s children) challenged the will/trust and sought document production and formal administration; the circuit court suspended and later removed Laatsch as trustee and personal representative for withholding documents and continuing to act after suspension.
- After a 10-day trial, the circuit court (Judge Carroll) invalidated the March 10, 2008 will and trust for undue influence by Laatsch; the decision found document irregularities, withholding of records, improper representations about virtual representation, and removal of cash from safe-deposit boxes.
- This court affirmed the removal and invalidation decisions on prior appeals (Laatsch I and Laatsch II), establishing those findings as law of the case.
- The Estate later sought to surcharge Laatsch for attorney fees and costs it incurred due to her conduct; after a two-day evidentiary hearing the circuit court (Judge Borowski) ordered Laatsch to pay $1,235,954.20, finding her conduct rose to "extreme bad faith."
Issues
| Issue | Plaintiff's Argument (Laatsch) | Defendant's Argument (Estate) | Held |
|---|---|---|---|
| Whether Laatsch was denied a full evidentiary hearing and due process | Court improperly limited hearing and relied on predecessor judges to find bad faith | Prior findings were law of the case; hearing properly limited to whether those findings warranted a bad-faith surcharge | Court did not err; limiting relitigation was proper and Laatsch had opportunity to be heard; evidence supported bad faith finding |
| Whether evidence presented at hearing was sufficient to show bad faith | Evidence was insufficient to establish "bad faith" required for surcharge | Prior judicial findings plus evidence (withholdings, cash removals, large withdrawals, settlement incentives) show deliberate misconduct | Sufficient: aggregate record demonstrates "extreme bad faith," justifying surcharge under equitable authority |
| Whether surcharge could be based on acts before appointment or after removal | Court improperly surcharged for acts occurring outside Laatsch's fiduciary role | Actions taken in fiduciary capacity (e.g., attempting to admit will, withholding documents) caused the fees; withdrawal/related acts were tied to her fiduciary conduct | Rejected: surcharge tied to costs caused by her actions in fiduciary role (e.g., admitting the will); references to "before/after" do not show surcharge for non-fiduciary acts |
| Whether court improperly relied on WIS. STAT. § 701.1004 to award fees | Court erroneously relied on the 2013 statute as authority | Even if statute was cited, court relied on established equitable authority (Richards/Western Surety) to surcharge for bad faith | Reference to § 701.1004 was not reversible error; surcharge rests on equitable common-law authority for bad-faith fiduciary misconduct |
Key Cases Cited
- Richards v. Barry, 39 Wis.2d 437 (1968) (recognizes equitable power to surcharge a trustee for expenses caused by bad faith or misconduct)
- Western Surety Co. v. P.A.H., 115 Wis.2d 670 (1983) (surcharge of fiduciary permitted only for "something extra" — fraud, bad faith, or deliberate dishonesty)
- Gundlach v. Estate of Pirsch, 148 Wis.2d 425 (1988) (remanded where trial court failed to make explicit bad-faith findings before ordering a personal surcharge for attorney fees)
- Watkins v. LIRC, 117 Wis.2d 753 (1984) (reciting American Rule general prohibition on fee-shifting absent statute, contract, or recognized exception)